Property and Environment

Lack of supply is driving up property prices in Portugal

An imbalance between demand and supply is continuing to drive strong price growth in Portugal’s residential property market, the latest housing market survey suggests.

A similar picture is depicted in the lettings market, where rents continue to rise firmly on the back of solid tenant demand and falling landlord instructions, according to the October trend report from the Royal Institution of Chartered Surveyors (RICS) and Confidencial Imobiliário.

Overall, new buyer enquiries remained unchanged in October with the net balance coming in at just -2%. This follows a broadly flat underlying trend in demand over the past few months, notwithstanding the 21% net balance reading in September.

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What’s more, enquiries were reportedly flat in all three regions covered in the survey. Likewise, the agreed sales net balance indicator pointed to no change in transactions at the national level, although sales did reportedly rise very modestly across Porto and the Algarve.

The report says that the softer trend in activity is having an impact on the National Confidence Index, a combined measure of near term price and sales expectations, but this indicator still remains comfortably in positive territory at plus 15 in October compared with plus 27 in September but it is the weakest reading in four years.

Meanwhile, the headline new instructions indicator edged further into negative territory in October with a net balance of 27% reporting a fall. Significantly this marks the nineteenth consecutive month in which the supply of properties for sale have declined.

On the back of this, prices continued to rise firmly at the headline level with a net balance of 24% of respondents citing an increase. Expectations for the coming three months have moderated slightly but are still suggestive of further price inflation nonetheless.

In the lettings market, tenant demand continued on an upward trajectory, albeit the pace of growth in the latest results was the softest since February 2016. Alongside this, new landlord instructions declined once again.

As a result, the rental growth indicator continued to point to further gains. Expectations suggest this will persist over the coming three months, the volume of lettings, however, are envisaged to decline in the same timeframe.

‘The key factors driving the market remain the same. The most quoted, however, is regulatory and fiscal instability, which is increasingly affecting investors’ confidence. This is particularly true in Lisbon, where new rules regarding the local lodgement market appear to have had an adverse impact on Lisbon’s Historic Centre (LHC),’ said Ricardo Guimarães, director of Ci.

According to RICS chief economist Simon Rubinsohn, although October’s results suggest momentum has eased somewhat, forward-looking metrics are still suggestive a reasonably solid outlook for the market.

‘Indeed, the macro fundamentals remain strong, which should help provide a positive backdrop for housing market activity in the near term,’ he said.

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